Congratulations—you're ready to hire your first employee. It's a huge milestone for your electrical contracting business, but it also triggers a new set of insurance requirements that you can't ignore. The moment you bring someone on payroll, you're not just responsible for their work quality; you're also on the hook for their safety, their workplace rights, and the legal risks that come with being an employer. Here's what you need to know about the insurance coverage that becomes mandatory (or highly advisable) when you make that first hire.
Workers' Compensation: The Big One You Can't Skip
In most states, hiring your first employee immediately triggers the requirement to carry workers' compensation insurance. States like California, New York, New Jersey, and Rhode Island require coverage from day one. There's no grace period, no "I'll get to it next month." The law is clear: if you have an employee on payroll, you need workers' comp.
A handful of states have different thresholds—some require coverage at two, three, or even five employees—but for electrical contractors, assuming you need it immediately is the safest bet. Texas is the lone exception where private employers can opt out, though strict notice requirements still apply.
Workers' comp covers medical expenses and lost wages if your employee gets hurt on the job. Electrical work is inherently risky—live wires, heights, heavy equipment—so this coverage isn't just a legal checkbox. It's essential protection for both you and your team. If an employee suffers a shock injury or falls from a ladder, workers' comp ensures they get medical care without you facing a lawsuit that could bankrupt your business.
What Workers' Comp Actually Costs
Your workers' comp premium is based on your payroll and a classification code assigned to your type of work. For electrical contractors, the most common code is 5190, which covers both low-voltage systems (alarms, telecom, data cables) and higher-voltage electrical installation and repair work. The national average rate is about $2.67 per $100 of payroll, but state rates vary widely—from $2 to $8 per $100 depending on where you operate.
Let's say you hire an apprentice electrician at $40,000 per year. At $2.67 per $100 of payroll, you'd pay about $1,068 annually in workers' comp premiums. In a higher-rate state, that could jump to $3,200. These numbers can vary based on your claims history (tracked through your Experience Modification Rate or EMR) and the specific risk profile of your jobs.
Four states—North Dakota, Ohio, Washington, and Wyoming—operate monopolistic state funds, meaning you must purchase coverage through a state-run program. In other states, you can shop among private carriers to find competitive rates.
Classification Codes and Payroll Reporting Matter More Than You Think
Getting your classification code right is crucial. If your employee spends half their time doing low-voltage work and half doing high-voltage installations, your insurer needs to know. Misclassifying workers can lead to premium audits, back-charges, and headaches you don't need.
Most states follow the National Council on Compensation Insurance (NCCI) classification system, but California, New Jersey, New York, Delaware, and Pennsylvania use their own codes. In California, there's even a dual wage system where each construction classification has specific hourly wage thresholds set by the California Workers Compensation Insurance Rating Bureau (WCIRB). If you're operating in one of these states, work with an insurance agent who knows the local rules.
Accurate payroll reporting is equally important. Your insurer will audit your payroll at the end of the policy term, and if you've underreported, you'll owe the difference—sometimes with penalties. Keep meticulous records of hours worked, wages paid, and job classifications.
Employment Practices Liability Insurance: The Coverage You Hope You Never Need
Once you have employees, you're exposed to employment-related lawsuits. Even if you're a fair, ethical employer, a disgruntled worker can file a claim for wrongful termination, discrimination, harassment, or retaliation. These claims are expensive to defend—even when you win.
Employment Practices Liability Insurance (EPLI) covers the legal defense costs, settlements, and judgments arising from these claims. In 2025, wrongful termination claims accounted for 30% of all EPLI claims, and EPLI premiums have risen 6.7% due to increased claims involving harassment, bias, and workplace discrimination.
For a small electrical contracting shop with one or two employees, EPLI might seem like overkill. But consider this: even unfounded claims can cost thousands in legal fees. For example, a shop with 10 employees and $600,000 in payroll can expect to pay between $1,200 and $3,000 annually for EPLI, depending on coverage limits and deductibles. You can start with minimum policy limits of $100,000 per claim and adjust as your team grows.
Many insurers offer EPLI as an endorsement to your Business Owner's Policy (BOP) or general liability policy, which can save you money and streamline your coverage. If you're already carrying a BOP, ask your agent about adding EPLI—it's often more affordable when bundled.
What Happens If You Don't Comply
Skipping workers' comp isn't just risky—it's illegal in most states. Penalties for operating without coverage can include fines reaching tens of thousands of dollars, criminal charges, and stop-work orders that shut down your job sites immediately. A stop-work order means exactly what it sounds like: all operations cease until you provide proof of insurance. That's lost income, missed deadlines, and damaged relationships with clients and general contractors.
Beyond regulatory penalties, you're also personally liable for any workplace injuries if you don't have coverage. If your employee gets hurt and you don't have workers' comp, they can sue you directly for medical bills, lost wages, and pain and suffering. That lawsuit isn't covered by your general liability policy, and it can wipe out your business savings.
Special Note for California Contractors
California has some of the strictest workers' comp rules in the country. Thanks to SB 216, all licensed contractors in California must carry workers' compensation insurance by January 1, 2028—even if they have no employees. If you're a solo operator with a contractor's license, you'll need either traditional workers' comp (if you have employees) or a "ghost policy" (if you work alone). Originally set to take effect in 2026, SB 1455 delayed the requirement to 2028, but the clock is ticking.
If you're operating in California and planning to hire your first employee, make sure you're working with an insurance agent who understands the state's unique wage classification system and compliance requirements.
How to Get Started
Before you make that first hire, take these steps:
First, contact an insurance agent who specializes in contractor coverage. Explain your business, your projected payroll, and the type of electrical work you do. They'll help you determine the right classification codes and get quotes from multiple carriers.
Second, ask about bundling options. If you already have general liability and a BOP, adding EPLI and workers' comp through the same carrier can reduce your overall premiums and simplify billing.
Third, set up a system for tracking payroll and job classifications from day one. This will make premium audits painless and help you avoid surprises at renewal time.
Hiring your first employee is an exciting step, but it comes with new responsibilities. Workers' compensation insurance isn't optional in most states—it's the law. And while EPLI might feel like an extra expense, it's a small price to pay for protection against employment lawsuits that can derail your business. Get the coverage in place before your employee's first day, and you'll have peace of mind knowing you're protected, compliant, and ready to grow.
